Sugar and coffee hit multi-year highs

Sugar and coffee prices hit multi-year highs on Monday, further boosting food inflation concerns as supply problems mounted after a string of lower-than-expected harvests due to unfavourable weather, analysts said.

The surge in sugar and coffee prices comes as other agricultural commodities – from corn and wheat to soyabean and barley – trade near a two-year high. Analysts said sugar supplies remained tight after a low crop in Brazil, the world’s top exporter, and Australia due to bad weather and also export restrictions in India, the second-largest producer.

The European Union has delayed a decision about allowing further export licences, with officials in Brussels saying the priority is to supply the internal market. Last week, Portugal ran out of sugar briefly, the first European country to suffer a sugar shortage in at least 30 years.

In New York, ICE March raw sugar surged to a 30-year high of 33.5 cents per pound, up 3.1 per cent on the day and above the previous peak set in November.

“The highs posted nearly two months ago have been breached without any sign of a let-up,” said Thomas Kujawa, a sugar broker at Sucden in London. “Any retracement may prove to be short-lived,” he added.

Raw sugar prices later pared gains to trade up 1.1 per cent to 32.85 cents.

Since January, the cost of raw sugar has surged by 22 per cent and traders anticipate further gains in 2011 as demand outpaces supply by a large margin.

India said last week that it would tentatively allow unrestricted exports of 500,000 tonnes of sugar in the near term.

But the country has yet to make official its commitment and traders worry that New Delhi will only allow exports in a drip-by-drip fashion.

“India does not want any big amount of sugar to leave the country in a rush,” said Toby Cohen, head of research at Czarnikow, the London-based sugar merchant. Meanwhile, ICE March arabica coffee surged briefly to a fresh 13½-year high of $2.2695 a pound, up 0.7 per cent on the day.

The contract for the high- quality beans later moved down on profit-taking, losing 0.3 per cent to $2.2455 a pound. Analysts said that output in Colombia, the world’s top producer of high-quality arabica coffee, will be much lower than expected. The country’s output fell last season to a 35-year low of 8.1m bags, each of 60kg.

The market had previously expected that production would recover to 10m bags or even higher but most recent forecasts, after heavy rains hit the coffee areas, put Colombia’s output at 9m bags, nearly 2m bags under the 10-year average coffee production of 10.9m bags.